How Muizzu is balancing ties with India and China amid economic crisis – Firstpost

The much-strained India-Maldives relations from the early days of President Mohamed Muizzu’s presidency since November 2023 seem set to take a new, even course. The message from Male is becoming clearer, or so it seems—that Maldives would address all of India’s strategic/security concerns, vis-à-vis China especially, but would reserve sovereign rights and national expediency to do business with other nations, starting with China and including Turkey.

China has been an intervener and interrupter in IOR affairs for some time now, while the latter entered the scene, first through Pakistan and more recently through Muizzu’s Maldives since his election in November 2023. That message is also seemingly emanating from India’s other ocean neighbour, Sri Lanka—and there is a caveat if it could be called so.

Through much of 2024, Muizzu sought to patch up avoidable misunderstandings with India, owing to inadequate understanding of the Maldives’ greater dependence on India on the economic front and an equally inadequate understanding of New Delhi’s security concerns in the shared waters. It flowed from his public outburst in mid-January after twin trips to Turkey and China, his first two overseas visits as president, within weeks of his taking over.

If more recent pronouncements and policy initiatives seemed to acknowledge the India-centric realities and act accordingly, a new hiccup has arisen in the form of Maldives and China signing an agreement for the latter to launch maritime research in Maldivian waters and supposedly training Maldivian personnel in the job. As may be recalled, New Delhi had felt uncomfortable after China’s controversial research/spy vessel was allowed to berth at Male, supposedly for rotation of personnel and nothing else, this time last year.

That was after common neighbour Sri Lanka had respected India/US reservations (the latter’s possibly concerning the Diego Garcia military base) and imposed a year-long moratorium on ‘foreign research vessels’ that ended on 1 January 2025 without any new SOP being put in place, as originally announced. In between, you also had the Muizzu government deciding not to renew the three-year India contract for joint maritime research, which is what now the new China deal seems to revive and replace.

After all, it was a part of the 20 agreements the two countries had signed during Muizzu’s China visit in early 2024. It only goes on to show that nothing much has changed in Maldives’ understanding and acceptance of India’s security concerns in the shared waters. If anything, Male has now sought to yield to India’s concerns without compromising on existing agreements with China, Turkey, or whoever—all possibly in the name of the Maldivian nation’s sovereign rights to take decisions independent of any external influence.

Bollywood music

A surprise and welcome element in this process, viz Maldives, was the recent celebration of ‘Staff Night’ by the all-important Finance Ministry. It had an Indian theme, with participants singing and dancing to Bollywood music and receiving awards, some of which were named in Hindi. For the unversed, many Maldivians have known Hindi without learning it formally ever since AIR’s ‘Vividh Bharti’ programme of Bollywood music audios became accessible in their country long years ago. There used to be occasional embarrassments for visiting Indian officials when they exchanged not-so-complimentary comments about their local counterparts, only to hear the latter begin talking in Hindi, however halting!

The Finance Ministry’s staff night is the first of its kind involving government employees in a long time. Even while being seen as India-friendly and criticised locally for being so, the predecessor government of President Ibrahim ‘Ibu’ Solih did not have any record of such events during its five-year regime, especially Covid-free periods.

As was to be expected, critics, starting with pro-Opposition sections of the media, have been prompt to point to the sudden U-turn in incumbent Muizzu’s ‘new-found love for India’ after winning the presidential elections, in which ‘India Out/India Military Out’ was among the main campaign themes. In private, there is also a grudging admission/admiration that such an event would not have become possible without the knowledge and clearance from the President. Looking deeper, there is a perception that Muizzu seems to want to run with the hare and hunt with the hound, all of it at the same time.

Huge hold, debt woes

There is no denying the economic situation, which seemed to be heading for a new, additional crisis after the Muizzu government operationalised the forgotten Free Trade Agreement (FTA), hurriedly signed by an estranged predecessor, Abdulla Yameen (2013-18), and the latter’s successor, Solih, from the ideologically opposite Maldivian Democratic Party (2018-23).

Today, when the China FTA is a reality, experts, both within the country and outside, have pointed to the possibility of Maldives losing an annual revenue of $40-50 million, a huge hole that could add to the nation’s debt woes. It could also impair the nation’s ability to obtain further credit, which has become inevitable from the end of the Solih term.

FTA with India

According to some sections of India’s press, too, is concerned, as it’s considering Maldives’ request for additional financial assistance to tide over the fiscal/economic crisis. According to experts, the Muizzu government has managed to put it off for the time being but has not resolved the issue. If anything, massive installments of repayment for previously obtained loans will become due sooner than the government is ready. What more, there is no clear idea for future funding or revenue earnings.

As if to address India’s concerns on the China FTA, Economic Development Minister Mohamed Saeed has revived talks of signing an FTA with India, too. In saying so in a local TV programme, the minister referred to President Muizzu’s state visit to India in October 2024, when his talks with Prime Minister Narendra Modi covered bilateral FTA as well. Opinion is, however, divided in the Maldives about the wisdom of signing FTAs with multiple countries with which the nation’s balance-of-payment situation is not favourable.

According to some, the government should undertake a country-wise, sector-wise study on how to boost Maldivian exports to these countries even though balance-of-payment parity cannot be achieved in full. They also refer to governmental claims about plans to export large quantities of Maldivian tuna and other marine food products to China. They argue that in value, those additional exports would not match Maldivian imports from China, especially after the FTA opens up the domestic market to a free-for-all dumping of cheap consumer goods in the local market.

Higher allocation

In a noticeable initiative, going beyond the recent twin ‘currency swap’ commitments in rupee (₹30 million) and dollar ($400 million) terms, India’s budget for fiscal 2026 has increased commitment for Maldives to ₹600 crore or $69 million, which is ₹130 crore more than the previous year’s revised budget. Of course, fiscal 2025 had seen a relatively lower outlay of ₹ 470 crore from ₹ 770 crore a year earlier. In all this, New Delhi has been guided by Prime Minister Modi’s ‘Neighbourhood First Policy’ and SAGAR (Security and Growth for All in the Region), both of which have an eye on the Indian Ocean security and development.

The two sides have since reviewed the progress on India-funded projects and decided for the Indian infrastructure partner to fast-track the prestigious $500 million Thilamale sea bridge, the single largest investment in the country. Work on the bridge had suffered during the Covid era, and there were other issues, too. The Maldivian government has since said that half the work, 50.8 per cent, to be precise, has been completed, and the target is to make the bridge operational by next year-end.

At the same time, the Muizzu dispensation has also been quietly asserting its independence in trade matters, as not as much investment commitment has come from any source other than India. Typical of the government’s continuing approach in this regard is the recent decision for China to train Maldivians in revitalising sea cucumber stocks, which has a huge market in China and the rest of East Asia but which is a ‘protected species’ under the law in India.

It is precisely for the same reason China has been ‘encouraging’ (?) Tamil fishers in Sri Lanka’s North to take to aqua farming of sea cucumbers for exports. As a broader policy issue, if New Delhi wants China to be kept out of such ‘economic opportunities’ for its ocean neighbours, it may have to devise ways for Indian investors/banks to fund similar projects in those countries, again with East Asia as the target market. The same, however, cannot be said of the near-simultaneous discussions to boost ‘strategic tourism’ and culture partnership with Turkey, as the said term remains and unclear.

Fiscal stability

The larger Indian concern about Maldives’ economy remains. As a responsible neighbour, New Delhi has the right and duty to feel that way—but has inherent limitations imposed by international best practices, not to interfere in the domestic affairs of a friendly nation. It is so even when India is ready to invest more time, energy, and money, especially to help neighbours, including the Maldives, to come out of the prevailing economic rut.

India continues to be concerned about the fiscal stability of Maldives. ‘Recent agreements that are likely to result in revenue loss for the Maldives government are obviously a matter of concern and do not bode well for the long-term fiscal stability of the country,’ Randhir Jaiswal, spokesperson of India’s Ministry of External Affairs (MEA), had commented after the operationalisation of the China FTA.

It was especially so after a section of the Indian media began expressing such concerns, seemingly linked to the continuing Indian assistance and also hopes of an early economic revival in the other. The unspoken media message in India was not only about the ‘China factor’. It also relates to the idea of New Delhi sinking good money after bad, when the host country is unwilling to apply ‘correctives’.

With the $7.8 billion Maldivian economy yet to have a taste of the Turkey FTA, signed recently, as Jaiswal said, ‘We would obviously need to take that into account … while framing our own policies’. He did not name any country. According to official World Bank data, much of the money the Maldives owes in loans is to China and India, which have extended $1.37 billion and $124 million, respectively. Or, the debt to India is less than ten percent of that to China.

Cost-cutting agenda

In addition, the country’s forex reserves still remain very low in lieu of ‘substantial external debt obligations’, ratings agency Moody’s said in December 2024. Moody’s expected Maldives ‘to continue to be tested on securing bilateral and multilateral financing to shore up external buffers’.

In a briefing session with Parliament’s finance and economic affairs joint committee, an IMF team also hailed Muizzu’s economic reforms agenda and urged swift implementation, including cost-cutting measures, as time was running out. It was the first of its kind for an IMF team to be confronted by discussing the Maldivian economy with the nation’s politicians, thus indicating the latter’s growing concerns in the matter. Committee chair and Jumhooree Party (JP) alliance leader, Gasim Ibrahim, a one-time finance minister, supported Muizzu’s reforms and pointedly referred to the ‘subsidy regime’ as a dampener.

A rags-to-riches billionaire businessman, Gasim in a way blamed it also on the democratisation of the nation’s politico-electoral path and at the same time reiterated the nation’s inevitable dependence on the Indian neighbour. Parliament deputy speaker Ahmed Nazim, a cousin of President Muizzu, too, has revived his constant references to the economic situation after a gap and has revived concerns about delays in the reforms process. For their part, some parliamentarians belonging to Muizzu’s ruling People’s National Congress (PNC) wanted the government to opt for alternatives to possible salary cuts (considering that public servants and their families also constitute the single largest electoral constituency).

All of it has raised more questions than answers for the Muizzu administration to address in the coming months and years, leading up to his re-election bid in the second half of 2028. In between, the nationwide island council elections next year would become a mid-term referendum on the Muizzu leadership. Much of the outcome would depend on the nation’s economic woes and the government’s handling of the same, as much at the level of the individual as that of the nation, per se—where more subsidy, and not less, alone might help as an inevitable interim measure.

Anti-defection law

In a nation, public administration is constantly hampered by unending political gossip, which has found a new and more effective outlet in social media. Successive presidents have felt unsure, especially during the current democracy era, which commenced in 2008. Incumbent Muizzu is no exception. Leaving aside the learning curve for self and team members, both ministers and advisors, Muizzu has developed an inherited the habit of looking more at his back than forward, where his nation’s future and that of his own, hence, lie.

The anti-defection law that his PNC-packed Parliament passed last year is one such piece of legislation. Now, the Supreme Court has taken up petitions challenging the constitutionality of the anti-defection law that binds elected MPs, especially PNC members in this case, to the leadership’s whims and decisions.

The seven-judge full bench of the Supreme Court has already dismissed the preliminary objections of the government put forth by a member of the attorney general’s office and has decided to commence full hearings after ten days. That could be during the Islamic fasting month of Ramadan, running through March. This in turn could confer a hollow of its own on the court proceedings, however unintended.

At least the Opposition parties are silently hoping for the Supreme Court to strike down the anti-defection law, which denies parliament membership to those crossing the floor. Long ago, the Opposition MDP had promised to back ruling party MPs who were willing to cross over in any fresh election for their seat. Zilch is the response thus far.

Yet, in the background of Muizzu’s overnight sacking of Ibrahim Faisal, minister for the mainstay tourism sector, there is anticipation and/or expectation that things may start moving against him if the Supreme Court strikes down the anti-defection law. Faisal is the son of Parliament Speaker Abdul Raheem Abdulla, popularly known as ‘Adhurey’, and he has retired to his native island with a ‘promise’ not to return to politics—a kind of traditional admonition during the previous presidencies of Ibrahim Nasir and Maumoon Abdul Gayoom.

Adhurey used to be a powerful man in the PNC and was seen as the mentor and guide who had silently ‘instigated’ or encouraged Muizzu to rebel against party founder and past president, Abdulla Yameen, and contest the 2023 presidential poll against the latter’s wishes/directions. Adhureys’ reaction after his son’s sacking is evidence of Muizzu’s full control over the party, starting with its parliamentary wing.

However, there are those who envision a different situation if the Supreme Court overturned the anti-defection law and restored the freedom available to parliamentarians to cross the floor at will and whim—and possibly for a price. They have been encouraged by the ‘open revolt’ by the powerful business community, especially the backbone tourism industry, over Muizzu’s ‘dollar deposit’ scheme.

The scheme aimed at shoring up the government’s forex reserves, a very imaginative scheme that was implemented without adequate consultations with stakeholders and proper planning thereof. Those critical of the government, from the political opposition and otherwise, are said to be counting on the SC verdict.

If the verdict goes against the government, there will be heightened talk of imminent impeachment of the president, whether or not it materialises on the ground. It’s the kind of instability that has rocked successive presidencies in the democracy era, and it is the kind of wilful destabilisation game that has stalled the government’s work and fiscal planning, with every president before Muizzu overdoing the subsidy scheme and the rest, fearing an imminent election before due.

The writer is a Chennai-based Policy Analyst & Political Commentator. Email: sathiyam54@nsathiyamoorthy.com. Views expressed in the above piece are personal and solely those of the author. They do not necessarily reflect Firstpost’s views.